The story of how I started investing with NISA, briefly regretted it after learning about iDeCo (and then solved it)
The other day, a friend who had just started investing asked me this.
“I heard there’s something called iDeCo, but which one should I start with, NISA or iDeCo?”
To be honest, I couldn’t answer immediately.
The thing is, when I first started NISA, I had looked into iDeCo once, but after seeing the phrase “you can’t withdraw until age 60,” I closed the page right there. I was just operating on the feeling that “not being able to withdraw = scary,” and didn’t look into it any deeper.
This time, I’ve properly researched it again, and this is the story of how I arrived at my own answer. If you’ve started investing with NISA, I think you’ll definitely run into this question at least once.
First, a story about admitting my own “withdrawal allergy”
To write honestly, when I first looked into iDeCo, I was quite put off.
“The money you contribute cannot, in principle, be withdrawn until age 60.”
At the time, I was in the “it’s better to be able to use money whenever” camp, and I even confirmed multiple times that I could sell my NISA investments before starting (I’m the type who gets extremely nervous about any kind of “cannot withdraw” restriction).
So, the moment I heard “locked until 60,” my internal alarm went off full blast. I thought this was a temperament I couldn’t change, but after researching it properly this time, my thinking changed.
The “three faces” of iDeCo I discovered through research
Looking at the materials again and organizing the characteristics of iDeCo, this is what I found (sources are the official explanations from each company).
First. The money you contribute is deducted entirely from that year’s income.
The contributions you make to iDeCo are fully eligible for income tax deductions, which reduces your income tax and resident tax. If you contribute 10,000 yen per month, for example, there are cases where it is calculated that your income tax and resident tax will be reduced by around 24,000 yen per year (this varies depending on the person, such as their income tax rate).
In other words, iDeCo is a system where “while you invest, your taxes for that year also become cheaper.” This is a face that NISA doesn’t have.
Second. Investment gains are also tax-free. Investment gains such as interest, dividends, and capital gains are all tax-free. This is a strength similar to NISA.
Third. There are also deductions when you receive the money. Depending on the method of receipt, the retirement income deduction applies for lump-sum payments, and the public pension deduction applies for pension-style payments. In other words, it was designed with tax-friendly benefits at three stages: “when you put it in, when you grow it, and when you receive it.”
…And the answer to “why is it such a system?” was that “you can’t withdraw until 60.” In exchange for tax benefits, it strongly restricts the money to being for old age. The restrictions and the benefits were two sides of the same coin.
So, which one should you start with? (My answer)
To conclude, you can use iDeCo and NISA together (since they are separate systems, you can use both at the same time if you meet the conditions for both). It wasn’t a case of having to choose one or the other.
And regarding “which one to start with,” there are many explanations that recommend starting with NISA first for beginners who are not used to investing.
I also lean toward this way of thinking. The reason is simple: NISA has a high degree of freedom, meaning you can sell, stop, or withdraw at any time. In the initial stage of “getting used to investing,” I feel it is easier to continue if you make mistakes or practice in a place with high flexibility.
On top of that, I believe the tax-saving benefits of iDeCo (especially the reduction of income tax and resident tax) become effective when your income rises or when your retirement fund planning becomes more serious. Therefore, my order was a two-step approach: “Get used to monthly investing with NISA → Consider introducing iDeCo once your life and tax planning become clearer.”
The story of how I briefly regretted it and resolved it (the punchline)
After looking into it again, I briefly started to regret it, thinking, “If I had done iDeCo from the start, could I have received the tax savings?”
But when I thought about it calmly, the period when I was avoiding iDeCo was a time when even the “mechanism of whether you can sell or not” was vague to me. I am confident that if I had been putting monthly money into an account locked until age 60 in that state, I would not have been able to handle the mental stress every time there was an unrealized loss.
Now that I have practiced “not selling even if it goes down” and “relying on the system” for three years through NISA investing, the restrictions of iDeCo don’t look “scary” but rather like a rule that can be incorporated into my plan.
In other words, the answer was not to decide “which one to start with,” but to honestly know how much restriction my current self can endure. I told my friend, “Get used to it with NISA first, and when you start to feel the impact of income tax, look into iDeCo again.” I will follow that order myself as well.
In summary: iDeCo is tax-friendly in three stages—when you contribute (contributions are fully tax-deductible), when you grow your assets (investment gains are tax-free), and when you receive them (deductions apply)—but it comes with the restriction that you cannot withdraw until age 60 in principle. It can be used in conjunction with NISA, and it is a perfectly rational order for beginners to start with NISA first. My answer this time is that you should judge the restrictions not by “fear,” but by whether it is a plan you can endure.
Thank you for reading to the end! This note is an introductory article for those who “don’t really understand investing yet but want to try it anyway,” to help them take the first step. In my membership, I explain the next step—the “way of thinking” regarding household-wide tax and asset planning—in more depth. The membership has a “first month free” offer, so feel free to take a look, and if it doesn’t suit you, you can cancel while it’s still free!
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[Disclaimer] This article is written based on the author’s personal experience and opinions, and the author is not a financial or investment expert (FP, investment advisor, etc.). The contribution limits, tax system, and deductions upon receipt for iDeCo vary depending on your occupation and age, and the system is subject to change. When making a decision to join, please be sure to check the latest official information from the iDeCo official website, the Financial Services Agency, and your financial institution. I cannot guarantee the accuracy or completeness of the information in this article. Please make final investment decisions at your own risk. iDeCo carries the risk of principal loss, and losses may occur in products other than those where the principal is guaranteed. Past performance does not guarantee future results.